Will the energy crisis spell the end for German bakeries?
Skyrocketing prices for electricity, gas and grain are putting an existential burden on Germany’s many bakeries. Only large chains and successful artisan bakeries are likely to survive, said one baker in Bonn.
If you want to buy the most delicious bread in the city of Bonn, you have to plan well ahead: The line in front of the Kugel bakery is long. The prices are high too: A loaf of whole wheat bread has just gone up by 80 cents to €6.60 ($6.56). That’s about €2 more than the competition charges.
But Max Kugel’s customers in Bonn’s affluent Südstadt district continue to come and buy as if the Ukraine war and its impact on electricity and gas never happened.
The 32-year-old owner of the bakery is a little surprised. “I always expect a loss of sales when there are price increases, but we don’t see a decrease at all. It was rather surprising that even during the hot summer months, we still sold a lot of bread.”
The bakery boasts huge high-consumption ovens that run on electricity and gas. Prices of flour and grain are shooting through the roof. Then there’s the fierce competition with the many discounters and large bakery chains that sell cheap bread and rolls.
But many of them are already calling for a government bailout. “Only the very big and the very small will manage to survive,” Kugel predicts.
The busy bread baker counts himself in with the small ones. He has 13 employees at the oven and at the counter, although he would certainly have what it takes to expand with his concept. “Where there’s only bread” (Da wo’s nur Brot gibt) is his slogan, and it is written on each of the white packaging bags.
Every day, the bakery makes 10 types of bread without preservatives and baking mixes. No rolls, no cakes, no croissants. His business model: focus on the essentials.
“This focus is the recipe for success for me,” he said.
Growing up in his parents’ bakery
As a young child, Kugel would play in his parents’ bakery, where he would later complete his vocational training. His life was mapped out for him right from the start: at some point, he would take over his parents’ bakery.
But then he embarked on what he called his “road to the bakery,” which took him to Vancouver, San Francisco, and London. He decided to do things his own way. In 2017, he took out a loan for €200,000 and invested in specialist equipment. Today, five years later, he sees his business as crisis-proof.
“It has a size that enables me to react well to market developments, and that is a very reassuring feeling. We are flexible. We can decide to leave out one type of bread at short notice and increase the production of others a bit. If I had five, 10, or 20 stores right now, I would have a problem I couldn’t handle.”
Grain prices skyrocket
It’s not that increased energy and grain prices aren’t giving Kugel a headache. At the end of this month, the annual electricity bill will arrive in his mailbox, with what is expected to be an exorbitant increase.
The young entrepreneur had the foresight to raise his prices four weeks ago, for only the second time since the company was founded. There are also surcharges for rye, wheat, and spelt; as well as sunflower and pumpkin seeds.
“We are not dependent on the conventional flour, which is often based on grain from Ukraine. We buy organic grain from Germany. But here, the farmers have held back their grain, for now, waiting for the commodity price to go up on the stock exchange. And only then did they release the grain to the mills.”
There are around 10,000 bakeries in Germany, and with total sales worth almost €15 billion, the German bakery trade is one of the country’s most important economic sectors.
In the land of bread lovers, each household consumes an average of 56 kilos (123 lbs) of bread and baked goods per year, according to the central bakers’ association.
But when Kugel hears calls for the state to come to the aid of the struggling industry, he shakes his head in disbelief.
“We bakers are always at the forefront when it comes to complaining,” he said. “But it is others who have bigger problems. Throughout the COVID pandemic, bakeries remained open, as they were classified as essential businesses. Restaurants had to close down and use up their financial reserves. Of course, we have very high energy consumption, there’s no question about that. But for me, the bakers’ complaining is completely overblown.”
Max Kugel is convinced: every baker who is now sliding into insolvency has already had problems before and has made some mistakes. He said it was possible even before the Ukraine war to decide to be less dependent on natural gas, by installing a photovoltaic system on the roof, a heat pump in the basement, and by using excess heat from the ovens to heat water for consumption in the bakery.
Perhaps it is precisely in Bonn’s affluent Südstadt district that the future of German bakeries can already be glimpsed: There is a specialist like Kugel for real bread lovers, who will go along with any price increase as long as they are guaranteed high quality. Two doors down the street there’s a store from a big bakery chain with prices for those with lighter purses.
In these tough times, Max Kugel has a simple message: “Defy the crisis, continue to stay focused. And remember that a small business can really be a great fortune.”
This article was originally written in German.